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Which debt advice agencies use the breathing space? (no prize for guessing answer!)


Iain Ramsay


         Regulations enacted earlier this year provided debtors with the possibility of applying for a breathing space so that they could seek professional debt advice at an early stage and avoid tumbling into a debt spiral (see here ).  Individuals may only apply through  FCA regulated debt advisors who lodge the application with the Insolvency Service.

             Data released by the Insolvency Service under a Freedom of Information request indicates the breakdown of moratoriums applied for  by debt advice agencies under the Breathing Space regulations from their introduction in May 2021 until October 31, 2021.  Of a total of 32,070 applications, Step Change Debt Charity initiated 22,170 or approximately 70 percent of applications. No other institution comes close to this number. Citizens Advice Bureaux are the next most frequent institution initiating under 5000 applications, Payplan 1560 and National Debtline 580.

            While it is difficult to draw any broad conclusions from these data, they are not surprising. Step Change lobbied the government for the breathing space and a linked statutory debt repayment plan  where individuals will repay their debts over a manageable time table (perhaps an average of seven years). This legislation would fit the Step Change model which seems to favour debt repayment plans  for debtors.  Indeed a cynic might describe the regulations as the “Step Change 2021 Regulations”. Step Change receives the bulk of its financing from creditors under the Fair Share programme, where they receive a percentage of the funds repaid to creditors (about  10 percent), but apparently they also receive funds for money advice from the Money and Pensions Service. It is not surprising that other publicly funded agencies without the benefit of the  fair share programme and facing cutbacks should be concerned (see e.g. here).

          An important policy question is the role of  the different intermediaries in the insolvency system. We have seen the problems associated with the potential misselling of IVAs (see Joe Cook’s exposé here).  But  at a more general level  just as any review of a legal system cannnot ignore the role of lawyers, so a review of the insolvency system should  examine the role of debt advice intermediaries in the system.  However, I doubt that the Insolvency Service will attempt such an examination as part of its proposed review of insolvency options.  

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